Being new to NASDQ EDAT trading; i've noticed the difference that shows up in bid/ask on the ECN, when the ECN is not at the inside market. This in itself is no revelation as i've watched Level II screens for quite some time. I am trading JDSU on ISLAND right now to get comfortable with execution on my EDAT trading platform (IB's TWS). Lots of liquidity and relatively small price movement, which lowers my exposure to volatility. My question comes from the execution side. I take it, from reading on these pages, that it is not usually advisable to route to a market maker as they pretty much treat your order as an option. But if the ECN is out of the market by as much as a dime am i forced to take an offer or hit a bid that far out of market? If i route to the ECN but go inside the ECN, at, or at least closer to the inside market what rules apply to this order? This is probably a newbie question, but i couldn't find the answer in the NASQ instruction manual -- if you know what i mean! Anyway, any advice/experience would be appreciated. regards/greg
If I understand your question correctly, if there is no ECN at or near the inside, and you send in a limit order, your order will post on level II. Once it's posted, any participants who see it can hit your bid or offer by either using the same ECN you posted your order on, or by using Selectnet. There are no real "rules" about posting a bid or offer using an ECN, other than you must obey the bid downtick rule if shorting.
Greg, Go to http://www.tradecourse.com/sample and watch slide # 4. It may help with your question (you will first have to click past the instructions page). It is a common source of confusion for new traders. Try to think of Level 2 quotes as "Wanted to Buy" ads (bids) and "For Sale" ads (offers) in the newspaper classifieds. If you hit a bid with an ECN, you-as a seller- are answering the "wanted to buy" ad of some other buyer. If your order is not at a price that can be matched ie there is no bid at your desired sale price, then in essence there is no corrosponding "wanted to buy" ad for your sell order to answer. In that case the ECN will take out a "for sale" ad on your behalf by posting your sell order as an offer on the ask side of the L2. So if you are entering a sell order with an ECN at a higher price than the best bid available within the ECN's book of orders, it will be handled just as Zboy indicated in his post. Hope that helps.
ZB & TC Thanks! got it. It is pretty much what i thought, but nice to have confirmation. Currently i am playing just one stock -- JDSU -- it has lots of volume and the prints just fly. Very hard to see my bid/offer in the turmoil of L2. I am finding that execution skills are a bit tougher to master than i thought. I am using IB's TWS, and lots of times, while i am fumbling with the price and then the route -- the market moves past me and i just hit the available offer/bid on the ECN and transmit. This is killing me! I'm giving up nickles, and sometimes dimes, because the ECN is that far off the mkt! Thanks again for your help! regards/greg
gh1 - why not us IBs BEST execution mode. While it may not be perfect, you won't keep using nickels and dimes. IB does not get paid for order flow, so you don't have to worry about being ripped off that way.
Steve: it is my understanding that best will send order to the inside mkt, which is often a Market Maker. it is my further understanding that MM's can hold your order for some time and then decide if they want to execute it or not. This gives them a free option in a sense, and hangs your order up while the market is moving. I read recently that IB is working on a BEST ECN execution route -- now that, i think i would use. But i would probably let someone else go first and find out how it works. If my understanding of any of this is misguided PLEASE let me know! regards/greg
Greg, That is precisely why I think the IB platform sucks. THe commissions are great but similar to the old paid for orderflow argument against online brokers, what does the execution really cost figuring in the market impact cost. It sounds to me like you have a sound understanding of the order execution issues (ie SNET preferences via the best route can hang for 30 secs, etc) you just need to be able to convert your executin decisions into live orders in the blink of an eye-or else the market will move in a stock like JDSU-- (even worse in the old days ). It appears that IB's platform just isn't designed for this.
Greg, I found trying to hit a market market (either through SOES or SelectNet) at the inside market is very difficult. Maybe I'm not fast enough, but I have had much more success just using Island and putting in bids/asks slightly better than the inside market. I don't trade a lot of volume (< 1000 shares typically), so I often get filled.
greg, Maybe I don't understand your execution problem with IB but what I do is set up 2 or 3 different ECN's for each stock I wish to trade. I do this before the market opens or quickly on the fly. When I wish to buy/short, those 2 or 3 options are now readily available and I can execute a trade in the blink of an eye. Then, after I make the trade, I immediately set up 2 or 3 standing sell or buy orders to those same ECN's to get me out of the trade fast. One problem with this is the hotkeys won't scroll the price with multiple orders open. This I wish they would fix. Just a tad slower to scroll the price with the mouse. tradeRX